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Economic System

Of Islam

COMPARATIVE
ECONOMIC SYSTEMS

Economic System
An economic system is the method used
by a society to produce and distribute
goods and services.

COPY ALL

What determines which


type of economy a
country has?
The type of economy is determined by the
extent of government involvement in
economic decision making.

Traditional Economy
1. Allocation of resources is based on
rituals, habits, or customs
2. Roles are defined by family
3. People work together for the common
good
4. Little individual choice

Free Market Economy


1. Private ownership of property/resources
2. Business decisions are driven by the
desire to earn a profit
3. There is a great deal of competition.
4. Consumers have many choices

Mixed Economy
1. Individuals and businesses as decision
makers for the private sector
2. Government as decision maker for the
public sector.
3. A greater government role than in a free
market econom
4. Most common economic system today
Examples: England, Germany,
Russia

Command Economy
1. Central ownership of property/resource
2. Centrally planned economy
3. Lack of consumer choice
Example: Cuba and Former Soviet Union

Economic Systems

Pure
Comma
nd

Pure
Market

Mixed Economy

c
i
m
o
n
s
tem

United
Kingdom
79%
Germany
Russia
51%

71%

100

Pure
Comma

Pure
Market

Mixed Economy

c
i
m
o
n
s
tem

Canada
81%
Cuba
28%

Brazil
57%

100

Pure
Comma

Pure
Market

Mixed Economy

Australia
83%

c
i
m
o
n
s
tem

100

Pure
Comma

Pure
Market

Mixed Economy

Features Free Market


Economy
1. Economic Freedom: individuals have
the right to choose
2. Competition: more than one producer of
good/services insures choice
3. Private Property: individuals have the
right to own their own property,
including business

Features of American Free


Market Economy (cont)
4. Self-Interest: individuals make
decisions based on what is best for
them
Voluntary Exchange: individuals may
freely buy and sell goods
5. Profit Motive: individuals are driven by a
desire to profit (make money)

Features Command
Economy
1. Government regulation of some
business practices
Wages, labor hours,
safety practice.

2. Government limits certain choices


Cannot buy or produce certain
goods/services

3. Government provides aid to the needy


Medicare, Medicaid, welfare

Continuum of Economic
Systems

Command
Economy
Communism
On the far left

Socialism
Left of center
but right of
communism

Market
Economy
Capitalism
On the far
right

Capitalism
An economic system characterized by
private ownership of businesses and
marketplace competition
The government is concerned about its
people and takes care of those who cannot
care for themselves
The political system is a democracy with
leaders elected by the people
The United States and Japan

Socialism
Increased government involvement in
peoples lives and the economy
The main goal is to keep prices low for all
people and to provide employment for
many
The government runs key industries and
makes economic decisions
More social services for all and free or low
cost medical care
Canada, Germany, Sweden,

Communism
The government runs everything
(Totalitarian government)
Only one political party, the Communist
party, runs the government
All people able to work are assigned jobs
there is virtually no unemployment
The government assigns housing, schools,
and occupations
There is little to no economic freedom
Cuba, North Korea, and China are examples

ISLAMIC ECONOMIC SYSTEM

Principles of
Islamic economic
system

Devine Economic Plan


Malik 2

Wealth is a test

Not related to efforts

Anam 165/Nahal 71

Zumr 49

And Allah has made some of you excel others in wealth. (Nahal 71)

And Allah has made you successors in


the land
above
raised
some
of
you
and



others in
for
different
to
test
you

levels,
When
a man
in trouble
cries for
help of165)
Allah, and when he is
what
is gets
given
to he
you.
(Araf
granted favors, he says I have got it due to my knowledge. In fact
wealth is a trial but most of people do not know. (Zumr 49)

Mission of Islam ()
Prayer

Charity

Work ()

Fasting

Hajj

Spiritual Power

Piety

Unity

Economic Power


Output/Resource
()

Human Welfare

Social System

Economic System

)(

Outcome

Political System

Spiritual System

Economic Principles of Islam


Usage Side

)( Individual
)( State
Frugality & SharingDistribution

Earning Side

Usury

Business

(Hashar

)7

(Baqra
)279

(Baqra
)219



But
if ask
you
do
not
stop
taking
usury,
then
be ready
for
waris
They
you
how
much
they
should
;spend
Say:
"What

in
order
that
wealth
may
not
become
confined
to
the
Allah
has
allowed
business
and
forbidden
usury

with
Allah
and
His
Messenger
beyond
your
"needs.
Thus
Allah
makes
clear
to
you
His
rich
amongst
you.
)(Baqra 275
)21934-35)(Baqra

revelations: In order that you (Tauba
may ponder.
)(34

Legal System
Limited Capitalism
(surplus wealth for personal use)

Spiritual System
Spiritual Socialism

(human rights on surplus wealth)

Inter-dependent &
Inter-connected (Synthesis)
Restricts luxury &
wealth accumulation

Channels excess
wealth to needy

Immune System
(Regulatory)

Treatment system
(Repair/Maintenance)

Elevating ethical/
spiritual values

Restricting
evils/crimes

Dimensions of
Islamic Economic System

Primary focus of Islam is on the spiritual System (test of Taqwa/free will)


Legal system provides only safety valve for safeguarding basic human rights
Keeping excess wealth and generating income from it is allowed legally but
spiritually is it detested.

Principle of Islamic
Economic System
Riba Free Economy
It is forbidden to gain property or wealth by fraud,
deceit, theft, or other falsehoods
Hateful for a guardian to take from an orphan's
property
Forbidden are earnings from gambling, lotteries
Concept of Halal and Harram (Rizq-e-Halal)
No Exploitation
Unique Marketing

Cont
It is unlawful to hoard food and other basic
necessities.
Responsible in spending money
(extravagance)
No begging
encouraged to give constantly in charity
Earning and expenditure by Halal means.
Right to property and individual liberty
System of Zakah (welfare contribution)
Law of Inheritance (Mirath)

Status of Sources of Income


Labor
+
Capital

Ideal

(Entrepreneurship)

Permitted
Restricted

Prohibited

Partnership
(Labor + Capital)
Mi
dd

lem
en

Land

Money

ac
M

Medium of Exchange

e
n
i
h

% of contribution

Voluntary Charity ()
Entire wealth in access of basic needs

Inheritance ()
Strictly in accordance with injunction of
Quran
Zakat ()
Payable on wealth of individual

Taxes ()

Taxes imposed by state to


provide basic needs of its citizens

Compulsory

Marriage payment and


penalties on certain faults

Distribution Channels ()

Stock Exchange Transactions


Interest
based
Y

Load taken/given at interest


with security against fully
insured property (margin
financing)

Gambling
Y
Profit/loss
without
efforts at the
expense of someone
else
Limited liability concept in anti-Islam

X
Trade*
Risk capital investment at
profit/loss + Work + Public
benefit
*Limited liability is an exclusion

X Benefits
Public
Does the activity lead to
employment/resource
generation or brings harm to
the public interest

1.
2. Primary purpose of the transaction is to make quick money rather than long term
investment
3. Mostly investment is made from loan taken from banks or brokers
4. It is a gambling business (gain at the loss of someone else
5. Short term focus leads to extreme damage of public interest.

Property business (Plots)


Interest
? based

Loan taken/given at interest


with security against fully
insured property (margin
financing)

Gambling
Y without
Profit/loss
efforts at the
expense of someone
else

Trade*
X

Risk capital investment at


profit/loss + Work + Public
benefit
*Limited liability is an exclusion

XBenefits
Public
Does the activity lead to
employment/resource
generation or brings harm to
the public interest

As per Islamic law house is right of every Muslim. Anyone trying to grab the property for
the purpose of trade/profit making is haram because it is a gamble (profit/loss at the
expense of others) and it is also not a business/trade as it does not lead to any fruitful
business activity which entails hardwork. As a consequence of profit making price of the
property rise and takes it out of the reach of legitimate buyer for building his house

State Financial Crime: Inflation


4,690

Value Rs

5,000

4,000

An item costing Rs
100 now costs Rs
4,690 in year 50
@8% inflation rate

3,000

3,192

2,172

2,000

1,479
1,006

1,000
100

147

216

317

10

15

466

685

0
20

25

Year

30

35

40

45

50

Limited Liability
Islam does not
permit
limitation
of liability. Every
individual is fully
responsible for
his deeds

Resources Credit

Judges
Production

Corporate
Capitalist Citizen Commerce
Law
(limited liability)

(1886)
Trade
Politicians


Jobs Media

Corporation:
An
ingenious
device
for
obtaining
individual
profit


without individual responsibility.
(Fatir 18)
aduty
but
to
the

Allah does not impose upon
anyone
Moto:can
Profit,
growth
&He
Competition
and for
amorality,
extent
of hisa
ability;
gets
reward
every
Nor
bearer
of burdens
beargood deed,
dehumanization,
opposition
to nature.
and
suffers for every
ill that
he earns. (Barea 286)

Does Islam allow any Banking System?

1. Banks were created for taking public deposit and


lending at interest and investment
2. Interest is against natural laws.
3. Banking was conceived in iniquity (against natural
law) and was born in sin (for the benefit of rich).
4. An interest rate of zero means the end of the
money & banking system.

Three economic modes of Muslims


Hallal means of living
Moral
Distribution of entire excess wealth
(Height of
spiritual
living)

Hardy any situation of Zakat


E
L
Simple lifestyle
GG

U
R
T

Legal

S
F
HallalO
means of living
E
G

N Pays Zakat and other compulsory dues

Illegal

No distinction of hallal/harram

(MinimumRA Charity (infaq) up to the level of Taqwa


E
threshold
D
I
Modest lifestyle
W
of living)
(State of
practical
kufr)

Does not care to pays Zakat/other dues


Charity for image building
Extravagant and luxurious lifestyle
Stinginess/wealth piling up

Mirror view before/After Implementation

Deprivation

Tyranny
Savagery
Cut-throat competition
Self-centeredness
Criminality
Non-contributory
Robbery
/Contributory
Theft
Social Security
Racism
Plan
Cowardice
(Surplus Pool)
Ignorance
Tensions
Fear
Hunger
Servitude
Debt
Threats

Piety
Courage
Happiness
Justice
Content
Satisfaction
Chastity
Intellect
Humility
Compassion
Care of kin
Affection
Sincerity
Freedom
Fortitude
Munificence
Zeal & Endeavor

Harmony

Exploitation

Before (Savage Society) After (Natural Society)

Summary of natural economic System of Islam


1. Islamic view is that real economy controls, and the money is only a
supportive function. Protects labour/work.
2. Stop earning money through money and compels people to work and
invest money in business ventures
3. Eliminates sources of unearned income (interest/speculation)
4. No protection to capital and uses wealth in real economic activities
integrated with physical laws of nature.
5. Collect Zakat (wealth tax) no tax on income or consumption.
6. It is responsibility of individuals for meeting needs of poor and social
welfare of society
7. State is responsible for meeting basic needs of citizens and taking
administration/legal measure for checking concentration of wealth in
few hands.
8. Business in Islam is not an grabbing the opportunity but a Ibadah
covered under the ethos of Islamic principles of life.

Outcome of modern economic system


Explosion of
Explosion
of
Explosion
of

Over-supply
Competition

Debt




*****
(26)

And give to the relatives due and to the


needy and the wayfarer, and do not squander
Explosion
of
Explosion
Explosion
of Surely
wastefully.
the squanderers
are the of
Over-utilization
Over-wastage
Over-production
fellows of the devils
and the satan
is ever

ungrateful
to his
Lord.
(Isra 26-27)

Importance of Energy
How Much Human Energy Is Contained in One
Barrel of Oil?
***
1 Barrel of Oil = 5,800,000 BTUs
**
1 Barrel of Oil = 23,200 Hours of Human Work Output
Human work cost of 1 barrel of oil
Rate per hour= US$ 8/hour
Total cost= $185,600 per barrel equivalent human
work
Switchover is possible only when the oil cost
increases $185,600/barrel
Or Rupees 70,000/Litre
http://lifeaftertheoilcrash.net/Research.html

Greatest Threat to Life: Food Scarcity

from planting, irrigation, feeding and


harvesting, through to processing,
distribution and packaging. In addition, fossil
fuels are essential in the construction and the
repair of equipment and infrastructure needed
to facilitate this industry, including farm
machinery, processing facilities, storage,
ships, trucks and roads
Pesticides (Gas)

FROM THE CAVES, TO THE MOON, TO THE CAVES

Richard C. Duncan, Ph.D. Institute on Energy


and Man, June 27, 1996

Even if the entire mass of the earth were petroleum, it would be exhausted in
500 years at 5% increase in rate of consumption. For addition 100 year 157
earths would be required (current production is 10 Trillion Ton/year)

1. Pre Industrial Phase [c. 3


000 000 BC to 1765]
A - Tool making (c. 3 000 000 BC)
B - Fire used (c. 1 000 000 BC)
C - Noelithic agricultural revolution (c. 8 000
BC)
D - Watts steam engine of 1765 Industrial
Phase (1930-2025)

2. Industrial Phase [1930 to


2025, estimated ]
F - Peak energy-use
G - Present energy-use
H - Per capita energy-use 37% of peak
value

3. Post Industrial Phase [c.


2100 and beyond ]
J, K, and L = Recurring future attempts at
industrialization fail.
Other scenarios are possible.
DENYING THE UNDENIABLE
On the whole, however, it is only out of pride or
gross ignorance, or cowardice, that we refuse
to see in the present the lineaments of times to
come.
-- Marguerite Yourcenar, 1951

Story of Past Rebels


Tower of Babel

How many populations have We destroyed, which were given to wrongdoing? They tumbled down on their roofs. And how many wells are lying
idle and neglected, and castles lofty and well-built? (Hajj 45)
X

Period of Namrood (let us revolt) 2500 BC

What
should we
do?

Penalties on various crimes


Level

Crime

Action

Moral

various

Disliking/Curse of
Allah

Adultry

100 Lashes

Killing

Revenge (Qasas)

Interest

War with
Allah & Rasul

Social

Political
Economic

Steps for healing the money system


1.
2.
3.
4.
5.
6.
7.
8.
9.

Limit growth and focus on wellbeing


Limit Debt & encourage entrepreneurs
Introduce zero rated
debts
The money
Impose Charge system
on moneyisholding
like a
Make speculation a criminal offence
cancer that
Incentivise productive work and investment;
consumes its
Tax Unearned Gains
host and
Replace labor for energy use
ultimately
Strengthen the social fabric of family and
destroys itself
community
10. Lease land for living/business purposes
Healing the Money System David C. Korten:

http://www.converge.org.nz/pirm/money.htm

Action at personal
level
1. Adopt simple lifestyle (Resource conservation &
2.
3.
4.
5.
6.
7.
8.

sharing)
Get out of interest/speculation based investments
Fully utilize goods before replacement
Eliminate moody craving for extravagant gadgetry
Get rid of fashion (a bio-economic disease of the
human mind )
Demand durable goods to be made still more
durable by being designed so as to be repairable.
Get closer to the nature as possible
Join hands to fight for reform at state level

Most frequent
question is: Where
is modern Islamic
Economic System?

Surprisingly, the Quran troughs the question back to


us?
Create it based on the guiding principles keeping in
view needs and deeds of the society. Then keep on
modifying it based on the emerging needs of the
Humanity

JazakAllah